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Survivors

Thank Goodness, the Big Island Does Not Only Depend on Tourism

November, 2001

American flags were scarce on the Big Island, following the Sept. 11 terrorist attacks on New York and Washington, D.C. So word traveled fast when radio station KISS-FM announced on Sept. 18 that Parker Ranch Store had just received a limited supply of 3-by-5- and 4-by-6-inch flags.

“Needless to say, they quickly ran out,” says Aubriene Merfalen, sales and public relations executive for the 225,000-acre Parker Ranch in Waimea. “Patriotism was sure flying high here,” she says.

That was how businesses in this quaint town – known for pastures, private schools and paniolo (Hawaiian cowboys) – coped with the nationwide tragedy. The terrorist attacks occurred thousands of miles away from the Big Island’s 150,000 residents, but red, white and blue fluttered across rainforests and volcano towns, beach resorts and downtown offices.

Less than one week after the incident, Big Island businesses began to feel the attack’s impact. Hotel occupancy dipped to as low as 30 percent, and flights were less than half full. “It’s quite evident that this will be long-term,” says Big Island Mayor Harry Kim. He and other state leaders at the time were scrambling for a financial tourniquet, any antidote to aid bleeding businesses.

There was one question on everyone’s minds: when was the downfall supposed to end? “How long, no one knows. To what impact, no one knows,” Kim says. “We have to do anything and everything to stimulate our economy.”

Businesses dependent on air cargo fought hard to not wilt. Eric Tanouye, owner of Green Point Nurseries, recalls jammed phone lines on Sept. 11 and 12. His staff spent more than a day notifying customers about shipment delays. “The Internet was also tied up,” he says. “It was frustrating because we were constantly calling and getting the ‘Our system is down’ recorded message, so we had to keep on trying.” Green Point specializes in tropical flower production and deliveries, mainly anthuriums. The company is on the Hawaii Tropical Flower Council’s Web site. About 60 percent of orders to the U.S. mainland are made via telephone and facsimile.

Big Island Candies, famous for its chocolate-dipped shortbread cookies, also relies on air transportation. “We own a niche, which is basically the gift market,” says President Allan Ikawa, as he observes the half-dozen customers milling around his store nine days after the tragedy. The sight was sweet consolation for Big Island Candies, which had just opened its factory doors 30 minutes earlier. The Hilo company employs about 100 and welcomes between 300 and 400 customers daily. Ikawa muses about the upcoming months, particularly the holiday season.

“It’s really, really spooky,” he says. “Every day, people are going to die off. The question is, how much can we handle?”

Business leaders on the Big Island are confident they can handle a great deal. They know they have the power, the stamina, to survive. After all, isn’t this where the world-class Ironman Triathlon World Championship is held every year? And isn’t this where the active volcano Kilauea has sent streams of lava since the 1980s? “We tend to get a lot of people who come to the Big Island just to see the volcano,” says Ross Wilson Jr., president of public relations firm Current Events.

Big Island business leaders especially are thankful their diversified economy does not only depend on tourism. “We’re not sitting here saying ‘Oh my god, we have to have tourists or we’ll die,’” says Paula Helfrich, president of Hawaii Island Economic Development Board. “We can take our products out there – as long as we have the accessibility. That’s our No. 1 priority.”

Infrastructure

She’s right. Accessibility is crucial on the Big Island, where two-lane highways transport motorists and commodities. Orange construction cones dot the island, and road projects abound. But, says Marni Herkes, president of Kona-Kohala Chamber of Commerce, “We don’t want to pave over paradise to accommodate all of our cars. We need to look at different ways to move people around.” Residents crave sophisticated infrastructure, not unbridled traffic jams.

One project scheduled to begin next year is the Saddle Road, a two-lane highway that connects the west and east coasts. The Federal Highway Administration, Central Federal Lands Highway Division and the state Department of Transportation anticipate the existing road will be restored by 2006. Approximately 900 vehicles use the existing Saddle Road daily, however once construction is done, that number is expected to skyrocket to 14,000 by the year 2014.

The Saddle Road work will be divided into four sections. “We wanted to break it up and allow local contractors who don’t have as much projects, to get a shot at it,” says William Moore, consultant for Okahara & Associates Inc. Section One begins at Mamalahoa Highway and ends at Kilohana. The Defense Access Road Program will fund Section Two, because it is the only paved road serving the U.S. military in the Pohakuloa Training Area. Dual phases for Section Two are expected to start around May 2002 and end in 2005. Sections three and four continue toward Hilo.

Today, the accident rate on Saddle Road is 81 percent higher than the average accident rate for two-lane highways in Hawaii. “People drive it too fast for what it’s designed for,” Moore says. “We plan to rebuild the road to make it safe and bring it up to modern design standpoints.” Even rental cars today aren’t supposed to travel on the existing Saddle Road.

Tourism

Sept. 11 was a wake-up call for the Big Island’s tourism industry. “In good times, we tend to forget how important visitors are, and in times of turmoil, we really understand the value of it,” says Wilson of Current Events. Hotel occupancy one week after the terrorist attacks fell to as low as 30 percent, significantly below the average (Big Isle hotels averaged 71 percent in 2000, a 5.3 percent jump over 1999). The drop especially was evident in domestic and interisland airline activity. Ten days prior to the attacks, a daily average of 740 domestic passengers had flown to the island. One week later, that number fell to an average of 498.

There were signs that tourism in 2001 would match the previous year’s performance – or at least remain flat. August year-to-date arrivals (most recent statistics available at press time) did not change compared to the previous year. Still the island’s tourism industry remained upbeat, thanks to the 4.4 percent boost in international visitor arrivals. Last year, Japanese arrivals climbed 13.5 percent, comprising 20 percent of the island’s 343,640 foreign visitors. That mainly was due to Japan Airlines’ daily direct flights from Japan to Kona.

Prior to Sept. 11, the industry had made efforts to woo more international tourists to the Big Island. Mayor Kim and a group of business leaders last May attended the 14th annual Korea World Travel Fair to discuss possible flights to Kona International Airport on Korean Air. The visit was a follow-up to a proposal the airline carrier had pitched in the mid 1990s, before the Asian economy took a nosedive. Fewer than 5,000 Koreans visit the Big Island each year.

Korean tourists would complement the island’s mix of visitors, particularly along the Kohala Coast, home to upscale resorts Hualalai, Kona Village, Mauna Kea, Mauna Lani and Waikoloa Beach. “We get a lot of the more sophisticated travelers who come here two to three times a year,” says Sharon Sakai, administrative director for the Kohala Coast Resort Association. Seven of the island’s 19 golf courses, and more than 4,300 hotel rooms and condominiums exist along the coast. That’s 44 percent of the island’s room inventory. Last year, Kohala properties contributed 10 percent ($8.4 million) to the island’s real property tax revenues.

The association prior to Sept. 11 had been planning its semi-annual media tour of the Big Island. Last year, it hosted the “Writer’s Cup,” a media tour for Japan- and U.S.-based golf publications. This year, family-oriented publications had been scheduled to tour the island in late October.

One Big Island attraction known for its family orientation is Parker Ranch, where more than 20,000 people visit each year. Hot-air balloon rides are scheduled to launch Dec. 1, following the first phase construction of the ranch’s new 121,000-square-foot shopping center. Beef jerky and coffee products – bearing the Parker Ranch name – hit store shelves this year, and there are future plans to sell plum jam and other sweets, using the Parker Ranch theme. A new commercial hunting program also was introduced.

“We try to link our products and activities, and market it under one umbrella – the paniolo culture,” says Diane Quitiquit, the ranch’s vice president of marketing and development.

Real Estate

Mark Richards, president of Maryl Group Inc., reminisces about the late 1980s, when “Japanese would come over, hire a limo, walk up to a house and offer someone an exorbitant amount.” Although the real estate heyday ceased years ago, last year’s dotcom boom in the U.S. mainland saw similar residential transactions along the Big Island’s west coast. Luxury homes were hot.

The construction of such homes boosted the value of building permits last year to $322 million, compared to $244 million in 1999. “The huge majority of buyers were 50 to 65 years old, had success along the way and wanted to enjoy it – second home buyers,” Richards says.

Maryl Group this year finished building a 49-unit residential area called Sandalwood. Each one-acre lot sold for an average of $750,000. Also under construction is the Villages at Mauna Lani, comprised of 135-unit fee-simple condominium golf villas. The Shops at Mauna Lani, a 70,000-square-foot development, will be located next to the residential units.

Luxury homes aside, the Big Island’s rental market remains strong. “We have about 400 long-term rental properties,” says Putman Clark, president of Clark Realty Corp. “At any point in time this year, we had about eight of them available.”

Sept. 11’s terrorist attacks brought down confidence in the real estate market – temporarily. Home developers say they will continue to build according to schedule. “We have about $50 million in contracts,” Richards says. “We’ll built those and find out what the market will tell us.”

Healthcare

Medical facilities on the Big Island are on the cutting edge; the number of healthcare professionals over the past decade rose more than 90 percent, faster than the region’s 25 percent population growth in the same period.

North Hawaii Community Hospital sits in the heart of Waimea and serves 30,000 patients from the Hamakua and Kohala coasts. It employs approximately 135. Medical staff last May unveiled a new 4,000-square-foot imaging center, featuring top-notch facilities: a CT scanner, biopsy equipment, a women’s health resources center and a $1.8 million magnetic resonance imaging device made by German maker Siemens.

This is no ordinary MRI. The magnet’s physical opening is wider than most, and patients don headsets while staring at backlit wall murals. The device serves an average of 13 patients daily, twice more than initial hospital projections. “Some of these are Hilo patients that could not get an MRI exam before because they were too claustrophobic,” says Wayne Higaki, projects manager for North Hawaii Community Hospital.

The hospital’s 18-member board of directors this year launched a $6.5 million fundraising campaign, and of late September, already $4.5 million had poured in from local banks and private donors. Parker Ranch this year also donated a $2 million parcel of land adjacent to the new wing.

On the east side of the island, Hilo Medical Center boasts state-of-the-art technology for breast cancer patients. The hospital’s doctors are pioneers in mammotome ultra high-resolution ultrasound and breast MRI. They have applied for a certificate of need with the State Health Planning and Development Agency to place an outpatient MRI in Hilo. If approved, doctors will be allowed to perform MRI-guided breast biopsies on site. “That way, women in Hawaii could stay in the state for this cutting-edge diagnostic services, rather than fly to the mainland,” says Dr. Scott Grosskreutz, the hospital’s chief of medical staff.

What the island also needs, says Grosskreutz, is a psychiatric treatment center for adolescents. “That’ll open doors for other construction,” says Dr. Dennis Lee, psychiatric director for the hospital. He and fellow professionals have been working with Washington senators to build a new Hilo medical facility for military veterans.

Agriculture

Hanging on Rick Vidgen’s office wall is a framed photo of MacNuts of Hawaii, a 3,900-acre macadamia nut farm in South Kona. The 1992 photo depicts blue horizon against lush, green orchards – quite a change from the parched trees outside Vidgen’s window today. In the year the photo was shot, a total of 26 inches of rain soaked South Kona. Due to the combination of La Ni˜na, global warming and Mt. Kilauea’s volcanic ashes, this year there only has been 9.9 inches of rain (between January and August). “We can get away with 30, and anything less than 30 is less than optimal. But once you get under 20 you’re in trouble,” says Vidgen, president of MacFarms. In 2000 and 1999, South Kona recorded 17 and 16 inches of rain. It’s been a long time since the region has witnessed a year like 1997, when 39 inches of rain fell.

The state’s macadamia nut crop from July 1, 2000, to June 30, 2001, produced 50 million pounds, or 6.5 million pounds less than the previous season. Competition from nut growers in Africa and Australia brought the local farm value down 22 percent to $29.5 million. Also down last season was the local net price for macadamia nuts: $0.59 cents per pound, down from $0.51 the previous year.

Still, Vidgen is optimistic. The new $11 million irrigation well, which serves his business and 65 other farmers, should boost agriculture production in the area (see “Big Projects, Big Island” at www.hawaiibusiness.cc.)

Despite the drought and global competition, MacFarms kept busy, thanks to California-based Blue Diamond Growers, which in April 2000 purchased the farm and its South Kona processing plant from previous owner Campbell Soup Co. The acquisition price wasn’t disclosed. “Blue Diamond has a good retail market in the mainland and in Japan,” Vidgen says. “It’s the world’s largest producer of pistachios, hazelnuts and almonds.”

Mac nuts aside, the Big Island continues to lead the state’s farm, flower and fish industries. All 37 aquaculture facilities last year generated $16 million, or 72 percent of the state’s total output. Algae and shellfish products reeled in the most money: $7.9 million and $3.6 million (see Hawaii Business October 2001).

“Hawaii is one of the best places in the world for growing microalgae,” says Gerald Cysewski, president of Cyanotech Corp., the 90-acre anchor tenant of the Natural Energy Laboratory of Hawaii.

The company sells algae products under the brand name Spirulina Pacifica. Clinical researchers are testing to determine if Cyanotech’s other commercial algae product, BioAstin, relieves health problems, such as carpal tunnel syndrome and sunburn. Cyanotech in fiscal year 2000 had gross revenues of $8.04 million, a climb over $7.4 million the previous year.

Another Natural Energy Lab tenant, Kona Bay Marine Resources, grows pathogen-free clam seeds (juvenile clams), oysters and large shrimp. The company cultivates juvenile clams to sell to other farmers, who then harvest the clams to maturity. “You cannot thrive if you only provide to the local market,” says Ivan Lui-Kwan, president of Kona Bay Marine Resources. “You need to go outside Hawaii.”

Fruit farmers and flower producers share Lui-Kwan’s philosophy. Of the $17.5 million in overall fruit sales (up 13 percent over 1999), papaya producers generated $10.2 million in farm receipts, almost 64 percent of the state’s $16 million papaya industry. Big Island bananas generated $4.9 million in sales, or 29 percent more than the previous year.

Big Island flower and nursery products bloomed in the year 2000, comprising 57 percent of the state’s total wholesale value of $83.4 million. Altogether, the island’s 365 farmers produced $46.8 million worth of flower products, up 13 percent from the previous year (see list of top five nursery products). The industry had anticipated slightly lower, yet steady sales again this year, however the Sept. 11 terrorist attacks in the U.S. mainland and their impact on cargo movement changed that.

Says Eric Tanouye of Green Point Nurseries: “My staff knows and is aware that we all have to work harder now.”